Asbestos: Industry Profile

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Asbestos: Industry Profile

Final Report

Prepared for

U.S. Environmental Protection Agency Office of Air Quality Planning and Standards Innovative Strategies and Economics Group MD-15 Research Triangle Park, NC 27711

Prepared by

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Asbestos: Industry Profile

Final Report

Prepared for

U.S. Environmental Protection Agency Office of Air Quality Planning and Standards

Innovative Strategies and Economics Group MD-15

Research Triangle Park, NC 27711

Prepared by

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TABLE OF CONTENTS

Section Page

1 Introduction . . . 1-1

1.1 Regulated Entities and Policy Alternatives . . . . 1-1

1.1.1 Regulatory Environment . . . 1-2

2 The Supply Side of the Asbestos Products Industry . . 2-1

2.1 Production Process . . . 2-1 2.1.1 Mining . . . 2-3 2.1.2 Milling . . . 2-4 2.1.3 Manufacturing . . . 2-5 2.1.4 Fabrication . . . 2-6 2.2 Types of Asbestos . . . 2-7 2.3 Costs of Production . . . 2-8

3 Demand for Asbestos Products . . . 3-1

3.1 Product Characteristics . . . 3-1

3.2 Uses and Consumers of Asbestos Products . . . 3-1

3.3 Substitution Possibilities in Consumption . . . . 3-6

4 Organization of the Asbestos Products Industry . . . . 4-1

4.1 Market Structure . . . 4-1 4.2 Asbestos Producers . . . 4-3 4.3 Manufacturing Plants . . . 4-4 4.3.1 Employment . . . 4-7 4.3.2 Current Trends . . . 4-8 4.4 Firm Characteristics . . . 4-9 4.4.1 Product Diversification . . . 4-9 4.4.2 Ownership . . . 4-9 4.4.2.1 Sole Proprietorship . . . 4-10 4.4.2.2 Partnerships . . . 4-12 4.4.2.3 Corporations . . . 4-13 4.4.3 Size Distribution . . . 4-15

4.4.4 Vertical and Horizontal Integration . . . 4-15

5 Asbestos Products Market . . . 5-1

5.1 Production . . . 5-1

5.1.1 Domestic Production . . . 5-1

5.1.2 Foreign Production (Exports) . . . 5-5

5.2 Consumption . . . 5-5

5.2.1 Domestic Consumption . . . 5-5

5.2.2 Foreign Consumption (Imports) . . . 5-9

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LIST OF TABLES

Number Page

2-1 Materials Consumed by Asbestos Product Manufactures

in 1982 . . . 2-6

2-2 Asbestos in Asbestos Manufactures by Weight and

Cost of Product . . . 2-9

3-1 Uses of Chrysolite Fibers . . . 3-2

3-2 Projections and Forecasts for U.S. Asbestos

Demand by End Use—2000 . . . 3-4

4-1 Share of Value of Shipments by Number of Companies:

SIC Code 3292 . . . 4-2

4-2 U.S. Asbestos Mines and Mills in Operation in 1989 . 4-4

4-3 Expenditures on New Plants and Equipment for

Asbestos Industry (SIC 3292) and All

Manufacturing Industries . . . 4-5

4-4 Employment in Asbestos Products (SIC 3292)

1982-1992 . . . 4-8

4-5 Legal Form of Firm Organization in the

Asbestos Products Industry: 1987 . . . 4-10

4-6 Advantages and Disadvantages of the Sole

Proprietorship . . . 4-12

4-7 Advantages and Disadvantages of the

Partnership . . . 4-13

4-8 Advantages and Disadvantages of the

Corporation . . . 4-14

4-9 Asbestos Products Industry General Statistics by

Employment Size of Establishment (1987) . . . 4-16

5-1 Asbestos: World Production, by Country . . . 5-2

5-2 Salient Asbestos Statistics . . . 5-4

5-3 U.S. Exports and Reexports of Asbestos and

Asbestos Products . . . 5-6

5-4 Countries Importing U.S. Asbestos Fibers and

Products . . . 5-7

5-5 United States Asbestos Production and Demand

1954-1989 . . . 5-8

5-6 Asbestos Prices . . . 5-9

5-7 U.S. Imports for Consumption of Asbestos

Fibers, By Type, Origin, and Value . . . 5-11

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vi

LIST OF FIGURES

Number Page

2-1 Use of asbestos products in primary, secondary, and

consumer industries . . . 2-2

3-1 Asbestos consumption by product for selected years . 3-3

3-2 U.S. apparent consumption of asbestos, 1957

to 1992 . . . 3-5

4-1 Comparison of the legal form of organization for firms

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SECTION 1 INTRODUCTION

The asbestos industry is undergoing a period of transition including significant changes in its basic market conditions. More specifically, increases in fiber prices, energy costs, regulation and legal action coupled with an ever-growing

consumer awareness of the health hazards posed by asbestos have served to constrict both the supply of and demand for asbestos products.

Asbestos products are manufactured from the basic raw

material asbestos ore. The manufacture of asbestos products is primarily included by the Standard Industrial Classification (SIC) code 3292. This industry is comprised of establishments primarily engaged in the manufacture of asbestos textiles, asbestos building materials, except asbestos paper, insulating materials for covering boilers and pipes, and other products composed wholly or chiefly of asbestos.1 Establishments primarily engaged in manufacturing asbestos paper are

classified in industry 2621 while those manufacturing gaskets and packing are included in industry 3053.

1.1 REGULATED ENTITIES AND POLICY ALTERNATIVES

Although asbestos products manufacturing facilities are considered to be an area source, not a major source, the EPA recognizes the significant risk and adverse health effects resulting from hazardous air pollutants in asbestos products manufacturing.

The regulations that EPA is considering would affect

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NESHAP. No new sources are expected to be identified.

Although no specific regulatory alternatives have officially been identified, some possible alternative include requiring hepa-filters as a final control device and more enhanced

monitoring of existing pollution control devices. The EPA is required to pass some regulatory control for the asbestos products industry no later than 4 years after enacting of the Clean Air Act, which was signed into legislation in 1990. 1.1.1 Regulatory Environment

Environmental and liability issues continue to affect the asbestos industry as the safe use of asbestos remains a major concern. Federal regulatory action on asbestos has taken a variety of forms. Regulations have been promulgated by the EPA, Consumer Product Safety Commission (CPSC), Department of Transportation (DOT), Food and Drug Administration (FDA), Mine Safety and Health Administration (MSHA), and the Occupational Safety and Health Administration (OSHA).

Under the authority of the Clean Air Act (1970), the Administrator of the Environmental Protection Agency (EPA) had the authority to designate substances as "hazardous air

pollutants." One of the three substances named first to the list on March 31, 1971, was asbestos.2 EPA was the first Federal agency to address the growing controversy about the effects of asbestos dust upon the health of humans by

promulgating a National Emission Standard for Hazardous Air Pollutants (NESHAP) in 1973. It prohibited visible emissions from asbestos mills and from nine different manufacturing

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Following is a brief review of the most significant regulatory actions affecting this industry.

Under the EPA rule on asbestos in school buildings published in the Federal Register (FR) of May 27, 1983,

inspections and identification of friable asbestos-containing material are required of all public and private elementary and secondary schools.3 In testimony before the Senate Subcommittee on Toxic Substances and Environmental Oversight, the EPA

testified in 1983 that within a year it would propose a ban on certain asbestos products. However, in 1985, the EPA announced its intention to refer the occupational safety or consumer

risks associated with asbestos to OSHA and the Consumer Product Safety Commission (CPSC) in effect placing an indefinite hold on EPA’s pending proposals to ban certain asbestos-containing products and the phaseout of the remaining uses of asbestos over a 10-year period.

In 1983, OSHA published its Emergency Temporary Standard (ETS), which lowers, by a factor of four, the permissible level of workplace exposure to asbestos which was later ruled invalid by the Fifth Circuit Court in 1984. On April 10, 1984 OSHA published its long-awaited proposal to revise the standard for occupational exposure to asbestos.

In 1989, EPA issued a final rule banning the manufacture, importation, processing and distribution of most

asbestos-containing products on July 12, 1989. The ban was to be

implemented in three stages. The first stage, effective August 27, 1990, bans asbestos-containing flooring and roofing felt, pipeline wrap, asbestos-cement corrugated and flat sheet, vinyl asbestos floor tile, and asbestos clothing. The second stage, effective August 25, 1993, would ban asbestos-containing

gaskets, transmission components, and original equipment drum and disk brake components. The third stage, effective August 26, 1996, would ban asbestos-cement pipe, commercial and

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Circuit overturned EPA’s 1989 ruling indicating that EPA did not adequately evaluate the health risks posed by asbestos substitutes or adequately assess the costs and benefits of alternatives to a complete ban on the use of asbestos.

The asbestos NESHAP has been updated and revised a number of times since its promulgation in 1973 and most recently in November of 1990. The revisions require daily monitoring of visible emissions for milling, manufacturing, and fabrication operations; weekly inspections of air cleaning devices; and recordkeeping. In addition, the auto industry and the EPA recently established a framework to achieve a voluntary phase-out of the use of asbestos in new cars, trucks, buses, and motorcycles.5

This profile begins by characterizing the supply side of the asbestos products industry including the stages of the production process, major factors of production, product characteristics, and costs of production. Section 3 characterizes the demand for asbestos products. The organization of the asbestos products industry is then discussed in Section 4, including a description of U.S. manufacturing plants and the firms that own these plants. Finally, in Section 5, historical statistics on the U.S.

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SECTION 2

THE SUPPLY SIDE OF THE ASBESTOS PRODUCTS INDUSTRY

In this section, we describe the production process for asbestos products as well as the primary, secondary and

consumer industries characteristic of the asbestos products industry. The section concludes with a discussion of the various types of asbestos fibers and costs of production.

2.1 PRODUCTION PROCESS

The asbestos industry is organized in the following manner. First, asbestos ore is mined and then milled to achieve a homogeneous, graded input, which is shipped to

primary industries. These primary industries then process and modify the raw asbestos fiber to produce an intermediate or finished product. Secondary industries may then be required to complete the final processing of the product into a finished good. This finished good or product is then sold to consumer industries which then apply, install, erect, or consume the product without further modification. All of these operations have the potential for releasing asbestos fibers to the

atmosphere.

The diagram below illustrates movement within the asbestos industry:

Primary Secondary Consumer

Mining —> Milling —> Industries —> Industries —> Industries

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Figure 2-1. Use of asbestos products in primary secondary, and consumer industries.6, 7

The types of asbestos products still manufactured today include the production of asbestos raw fibers (milling),

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asbestos cement pipe/sheet industry has been declining, and within the last year, the last two remaining plants closed

down. Some cement pipe was still produced in 1992. Similarly, asbestos vinyl floor tile and textile products have also

stopped being produced in the last 5 years.

Nearly all asbestos products are used in the manufacture of other final goods, and most are purchased by the

construction and automobile industries. The primary automobile manufacturers and the automotive after market--the secondary fabrication of asbestos friction material products--demand the majority of asbestos friction materials. Some vinyl-asbestos flooring used to be sold directly to the consumer, as are a few asbestos paper products such as rollboard. Generally, though, asbestos products may be considered intermediate goods.

Asbestos paints, asbestos coatings, and asbestos sealants do not undergo further processing after leaving the primary manufacturing plant. Several of the asbestos paper products receive further processing before final sale.

2.1.1 Mining

In the United States most asbestos ore is mined in

surface operations. Surface mining methods are used where the asbestos-containing ore lies near the surface and is not bound within massive rock deposits. Such ore can be bulldozed or removed by a power shovel. Coarse ore is crushed to a size that can be accommodated by the mill. The crushed ore streams are moved to driers to remove moisture from the ore (up to 30 percent by weight). The dried ore is then stored.

There are two mines in operation today: one owned by the Vermont Asbestos Group (VAG) in Orleans County, Vermont and one owned by KCAC, Inc., formerly Union Carbide, in San Benito

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KCAC, Inc., also operates both a mine and mill. However, these facilities are located in different cities. The Coalinga Mine is located in Coalinga, California, and the mill in King City, California.

In Vermont and the Copperopolis district of California, open pit mining is used, and blasting is required to loosen the overburden for removal. Holes are drilled for placement of explosives. Secondary blasting may follow initial blasting to reduce large boulders to manageable size. The ore is loaded by mechanical shovels into ore-hauling trucks and transported to a stockpile at a primary jaw crusher.8

Large amounts of ore are held to provide a cushion between variations in fiber demand and mine production over time, which stem primarily from cyclical changes in

construction. Conveyors and trucks are used at mine and mill sites to move ore from mines to mills. Typically, asbestos fibers are shipped from the mills in 100-pound multiwall bags made of paper or plastic and pressure packed to reduce bulk, damage and dust.

2.1.2 Milling

Asbestos milling is a complex operation primarily

involving separation of fiber from rock and classifying fiber by length; the basic method has changed little over the past several years.9 Milling, primarily carried out by fiberizers or crushers, frees the fibers from the rock and separates them from each other. The longest grades of fiber are not

mechanically milled but hand separated or cobbed from surrounding rock.

Separation of asbestos fibers from rock typically is initiated by conveying mine ore by a large hopper and pan feeder to a primary, jaw-type crusher. Outputs of these

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mill. This stockpile usually contains sufficient ore to sustain mill operation for an extended time. Wet ore is extracted from the bottom of the wet-ore stockpile by a

vibrating-chute feeder in an underground tunnel. The wet ore is then exposed to a drying current of hot air.

The dried ore is conveyed by belt to a vibrating screen that sizes the ore for fine crushing. A rock circuit then serves to separate asbestos fibers from the rock as well as to grade fibers according to length. Asbestos fibers are

separated into numerous standard grades and cleansed further in this rock circuit. The fibers are then machine packaged either by compressing the material into a dense bundle or by blowing the material into bags.

2.1.3 Manufacturing

Primary manufacturers will receive asbestos fibers from a particular mill or mills and perform a wide variety of

operations on the fibers to produce a primary product. Some examples of these manufactured materials include:

asbestos paper

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*Asbestos is used in the manufacturing process for chlorine.

**A depletion allowance affords a lower Federal corporation tax upon

income earned from the sale of exhaustible (depleting) resources. The percentage of depletion permitted, or depletion allowance, is a fixed deduction from annual gross income.

asbestos-reinforced plastics asbestos coatings and sealants asbestos gaskets and packing asbestos textile

chlorine.*

The primary raw materials used by the asbestos manufacturing industry are listed in Table 2-1. Because asbestos fibers are a nonrenewable resource, asbestos

manufacturers receive a domestic depletion allowance of 22 percent.**,10 Because demolition and removal partially degrades the asbestos filaments, asbestos fibers are not recycled.

TABLE 2-1. MATERIALS CONSUMED BY ASBESTOS PRODUCT MANUFACTURES IN 1987 AND 198211 1987 1982 Material (103 Mg) ($106) (103 Mg) ($106) Asbestos fiber NA 16.6 241.6 64.9 Portland cement NA 3.3 152.4 10.1 Vegetable oils NA NA NA NA Pigment NA NA 11.5 7.2 Plastics resins NA NA 194.3 61.2 2.1.4 Fabrication

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operations involved in secondary fabrication are similar to finishing operations of the primary manufacturing segments. They may use such operations as grinding, sawing, sanding, punching, pressing, or slitting, depending on the fabricated product desired.12 In many cases, primary manufacturers

fabricate their own products or the products of other primary manufacturers. These activities include operations such as the application of a vinyl coating to flooring felt to form a

completed floor covering and the use of asbestos paper to form gaskets.

Field fabrication of asbestos products is sometimes required, which involves occasional cutting and machining of A/C pipe and A/C sheet during installation of a pipeline or at a construction site and cutting of roofing and flooring

products during installation.

2.2 TYPES OF ASBESTOS

Asbestos is a term used to describe six naturally

occurring minerals exploited commercially for their desirable physical properties. The six minerals are the serpentine mineral chrysotile and the amphibole minerals grunerite

asbestos (also referred to as amosite), riebeckite asbestos (also referred to as crocidolite), anthophyllite asbestos, tremolite asbestos, and actinolite asbestos.13 Individual mineral particles, however processed and regardless of their mineral name, are not demonstrated to be asbestos if the length to width ratio is less than 20:1.14

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groups are divided into several subgroups to comprise the commercial specifications.15

2.3 COSTS OF PRODUCTION

The cost of asbestos fibers may constitute a significant share of the costs of a particular manufactured product. For instance, despite the low volume content in asbestos-cement pipe, asbestos accounts for about one-third of the product’s cost due to the high price of asbestos-cement fiber. On the other hand, despite the high proportional content of asbestos in friction materials, asbestos accounts for a small cost share due to the low quality of the fiber used. Table 2-2 gives the asbestos fiber cost share as a percentage of total cost for several product categories.

In conclusion, it is significant that a pronounced trend of increased tort litigation against asbestos product

manufacturers has occurred that has substantially affected their cost of doing business. Accordingly, this trend has become an integral constituent determining the supply

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TABLE 2-2. ASBESTOS IN ASBESTOS MANUFACTURES BY WEIGHT AND COST OF PRODUCT

Products Weight Sharea Value Shareb

Asbestos coatings and sealants 10-12 4

Asbestos friction material 40-80 14

Asbestos textiles 75-100 8

Asbestos roofing felt 85-87 30

Asbestos-cement siding and sheets 12-25 45

Asbestos-cement pipes 15-25 32

Asbestos resilient flooring: Vinyl-asbestos tile Asbestos felt 5-20 85 4 4 a

Asbestos content as percentage of product by weight. Weight shares are from product-specific profiles.

b

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SECTION 3

DEMAND FOR ASBESTOS PRODUCTS

This section characterizes the demand side of the market for asbestos products. We describe the asbestos products’ characteristics, the uses and consumers of asbestos products, and the substitution possibilities in consumption.

3.1 PRODUCT CHARACTERISTICS

As Lancaster describes, goods are of interest to the consumer because of the properties or characteristics they possess with these characteristics taken to be an objective, universal property of the good.16 Therefore, the demand for a commodity is not simply for the good itself but instead for a set of characteristics and properties that is satisfied by a particular commodity.

Asbestos has been used in a wide variety of products because of its high tensile strength, chemical and thermal stability, high flexibility, low electrical conductivity, and large surface area.17 Products made from asbestos were more heat resistant (and often incombustible), more resistant to chemical attack (particularly for alkalis), stronger (asbestos acted as a physical reinforcer), and less conductive (asbestos had a low dielectric constant). In addition, they were more viscose (asbestos stiffened compounds and coatings), faster setting (asbestos hastened water drainage in asbestos-cement pipe production), and more cost efficient than many non-asbestos products.18

3.2 USES AND CONSUMERS OF ASBESTOS PRODUCTS

The construction industry is the major consumer of

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accounted for 68 percent of the asbestos consumed in the United States in 1992.19

Asbestos is used only after processing to release the

fibers from the rock matrix and from each other. The processed chrysotile fibers are grouped by fiber length and their

respective end uses are shown in Table 3-1. Asbestos consumption by product in 1988 and 1992 is illustrated in Figure 3-1.

TABLE 3-1. USES OF CHRYSOLITE FIBERS20

Group Use

1,2,3 Fireproof textiles, clothing, theater curtains, different types of packings, woven brake linings, clutch facings, electrical insulation materials, and high-pressure and marine insulation.

4 Asbestos cement pipe, which is used mainly in transporting water, such as municipal waterworks, irrigation, and conservation projects.

5 Asbestos cement sheets, low pressure asbestos cement pipes, and molded products. It is also used in some paper products such as pipe insulation, wrappings, and other products, including brake linings and gaskets.

6 Asbestos cement products, gaskets, brake linings, vinyl sheet backings, and millboard.

7 Molded brake linings and clutch facings, as a filler in vinyl and asphalt floor tile, and in asphalt

compounds, joint and insulation cements, roof coatings, plastics, and caulking compounds.

A wide variety of asbestos-containing civilian products also have military applications. Examples include friction materials (brakes and clutches), electrical and thermal insulations, packings and gaskets, asbestos-reinforced

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Note: 1992 asbestos consumption data available only for selected products.

Figure 3-1. Asbestos consumption by product for selected years.21

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TABLE 3-2. PROJECTIONS AND FORECASTS FOR U.S. ASBESTOS DEMAND BY END USE--2000

(10

3 metric tons)

22,23

2000

Contingency Forecast for United States

Forecast Range End Use 1983 Statistical _Projections a Low High Probable 1992

Asbestos cement pipe

26 0 25 150 100 1.7

Asbestos cement sheet

10 0 0 30 16 * c

Coatings and compounds

23 61* 25 70 50 0.9 Flooring products 45 0 25 90 70 0 Friction products 48 2 50 160 120 9.9 Insulation 1 0 5 2 0

Packing and gaskets

12 0 0 30 10 3.3 Paper 2 0 0 10 2 * Plastics 1 0 10 50 25 * Roofing products 6 0 0 10 5 16.3 Textiles 1 0 0 4 2 0 Other 42 0 0 100 43 0.6 Total b 217 -185 700 450 32.8

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asbestos decreased 6 percent from 34,765 tons in 1991 to 32,780 tons in 1992. Slight increases in consumption were observed in the production of coatings and compounds, friction products, packing and gaskets, and roofing products. Consumption in asbestos-cement products, paper, plastics, and miscellaneous application declined. Approximately 98.5 percent of the

asbestos consumed domestically was chrysotile. The remainder was crocidolite.24

The peak year for apparent asbestos fiber consumption was in 1973 when 794,000 Mg were consumed. Domestic consumption of asbestos from 1957 to 1992 is graphed in Figure 3-2.25,26

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From 1973 to 1992, a study deadline in consumption

occurred. Consumption rose slightly in 1984, probably due to increased demand in the construction market resulting from a strong national economy. Consumption began to decline again in 1985, and has fallen steadily through 1992. This can be

attributed to several factors, one of the most important of which is the growing public awareness of the health hazard posed by airborne asbestos fibers. Increased public concern coupled with increased costs of manufacture due to safety and health regulations will likely cause domestic consumption of asbestos to continue to decline, although data on the trend do not provide enough information to warrant any strong

conclusion.

3.3 SUBSTITUTION POSSIBILITIES IN CONSUMPTION

The environmental problems with asbestos make markets vulnerable to substitutes. Manufacturers gradually have been replacing asbestos with substitute materials, redesigning old products to eliminate the need for asbestos, or designing new products that require neither asbestos nor asbestos

substitutes. However, economic, manufacturing, performance and/or technical difficulties must be considered before

asbestos is replaced by a substitute material or product. A suitable substitute must approach the strength, chemical inertness, durability, and cost of asbestos.

Examples of materials substituted for asbestos include aramis fiber, carbon fiber, cellulose fiber, ceramic fiber, fibrous glass, several varieties of organic fiber, steel fibers, and wollastonite.27 Examples of alternative products include aluminum, vinyl, and wood siding; aluminum and

fiberglass sheet; asphalt coatings; ductile iron pipe;

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Although it is certainly true that many

asbestos-containing products have few or poor substitutes, it is also true that the products that account for the bulk of fiber use in the United States face competitive markets. Of total U.S. estimated asbestos consumption in 1992, approximately 55

percent was used in the manufacture of asbestos-cement pipe, asbestos-cement sheet, and roofing felt.29 Both asbestos-cement pipe and asbestos-cement sheet have many close substitutes as basic building materials.30 Asbestos roofing felt competes with organic felt, fiberglass felt, and roofing systems other than the built-up variety. Consequently, it is likely that overall demand for asbestos will be fairly price responsive.

For some asbestos products however, the demand will be more inelastic, particularly in the area of gasketing

materials, where few substitutes are available. Friction materials often have been cited as products with very poor asbestos-substitution possibilities, but this may no longer be the case for all friction materials. Clearly, continuing

research and development in the industry is aimed at replacing asbestos containing products with substitutes that function in a suitable fashion. As progress is made in these efforts,

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SECTION 4

ORGANIZATION OF THE ASBESTOS PRODUCTS INDUSTRY

In this section, we describe the structure of the asbestos products industry, the manufacturing plants’ characteristics, and firm characteristics.

4.1 MARKET STRUCTURE

The market structure of an industry pertains to the number of firms in the industry, the market shares of those firms, and the extent to which those firms perceive a threat of potential competition from new entrants. Market structure is of interest because of the effect it has on the behavior of producers and consumers. A market is generally considered to be the locus where producers and consumers interact to trade goods and services.

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TABLE 4-1. SHARE OF VALUE OF SHIPMENTS BY NUMBER OF COMPANIES: SIC CODE 3292

31

Percent accounted for by

Companies (number) Total ₍₁₀ 6 $) 4 Largest Companies 8 Largest Companies 20 Largest Companies 50 Largest Companies Herfindahl Index for 50 Largest Companies 1987 50 386.5 72 85 94 100 1750 1982 77 842.8 51 70 92 99 914 1977 86 882.1 42 64 90 98 NA 1972 88 763.4 50 71 91 99 NA 1970 NA 587.0 54 75 NA NA NA 1967 81 575.0 55 75 94 99 NA

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measure of the competitive structure of an industry. When a few firms produce a large portion of industry output, this is often interpreted as an indication that the industry is

oligopolistic, rather than purely competitive. The

interpretation should be modified to consider the concentration of producers in the individual product markets, rather than in the aggregated multi-product industries. For example, one company may produce a small portion of industry output, but a large portion of the output in one product market. It would be a mistake to conclude a perfectly competitive market structure based on industry-level concentration measures, which are

usually reported at the multi-product industry level (e.g., 4-digit SIC), rather than the individual product level. However, the existence of high concentration measures at the industry level may be a good indication of some oligopolistic market power. The 1987 Census of Manufactures reports that in 1987, the four largest firms collectively held 72 percent of the market. Walter Adams suggests that an industry might be

considered highly concentrated when the four-firm concentration ratio exceeds 50 percent.32

The Herfindahl Index has the merit of combining

information about the market shares of all firms in the market, not just the largest four or the largest eight firms. The

higher the index, the fewer the number of firms supplying the industry and the more concentrated the industry group or

industry is at the top. Census of Manufactures data report that the Herfindahl Index for the asbestos products industry increased from 914 in 1982 to 1,750 in 1987 suggesting that the market has become more concentrated at the top by a few

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4.2 ASBESTOS PRODUCERS

Asbestos is produced in the United States by two companies, KCAC, Inc., San Benito County, California, and

Vermont Asbestos Group Inc. (VAG), Orleans County, Vermont (see Table 4-2).34 Domestic production is limited to chrysotile, one of six commercial varieties of asbestos. KCAC operates a mine in a highly sheared serpentinite composed of matted, short

fiber chrysotile and unfractured serpentinite (also referred to as a mass fiber deposit). The ore is stripped, and wet

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TABLE 4-2. U.S. ASBESTOS MINES AND MILLS IN OPERATION IN 1993 Mining Company Type of Mining Mine Location Mill

Location Fiber Type

California Union Carbide Corp. Vermont Asbestos Groups Open Pit Open Pit Calaverasa Eastern San Benito County Morrisville King City Same Grade 7 Grades 4-7 a

The Calaveras mine closed down in 1987.

California is the leading asbestos-producing State,

accounting for about 70 percent of domestic fiber production. The Calaveras mine in Calaveras, California, was the largest domestic producer prior to its closure in 1987. The chrysotile asbestos content of ore varies across deposit locations. The lowest concentration is found in the Vermont ore, which is less than 4 percent asbestos by weight.

The Coaling area mines of California have been estimated to have a 100-year supply of short chrysotile fibers. However, no current technology exists to render the short fibers as

industrially useful as the longer fibers. Some asbestos ore in Vermont is not currently profitable to mine because it is

covered by overburden. Additional production might take place if the price of raw asbestos fibers increased.

4.3 MANUFACTURING PLANTS

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than 100 employees--belong to the major firms within the industry. These facilities also produce minor amounts of

nonasbestos products. In particular, paper plants incorporate both asbestos and non-asbestos production. The small

manufacturer’s typical plant tends to be a single-product operation serving a specific industry within a restricted geographical region.

The manufacture of cement pipe and asbestos-cement sheet required large, capital-intensive plants. Paper products and friction materials plants are often much smaller. Friction materials plants may employ fewer than a dozen

workers. Paper plants operating with only one machine employ as few as 50 workers.

The most recent aggregate data available for the asbestos industry indicate that capital expenditures increased 35

percent from 1989 to 1991 but decreased 39 percent between 1990 and 1991. Capital expenditures of all industries followed a similar pattern (see Table 4-3).

TABLE 4-3. EXPENDITURES ON NEW PLANTS AND EQUIPMENT FOR ASBESTOS INDUSTRY (SIC 3292) AND ALL

MANUFACTURING INDUSTRIES35

(million dollars)

Industry/Purpose 1989 1990 1991

Asbestos industry (SIC 3292)

Total new expenditures

New structures and additions New machinery and equipment

All manufacturing industries

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Over 100 patents currently control the manufacture of asbestos products. Most recently, patents have been issued for control technologies to reduce worker exposure to asbestos

dust. According to executives of asbestos manufacturing firms, little research and development within the industry currently is directed toward new manufacturing processes or new

applications of asbestos products. This, to some extent, is in response to asbestos litigation that effectively discourages further involvement with asbestos and, therefore, any further asbestos product innovation or development. Hence, the

potential for technical innovation in the production processes or for the use of asbestos manufactures in new applications is minimal. Consequently, research and development efforts by asbestos manufacturers are directed instead toward developing substitute materials and products comparable in

cost-effectiveness to asbestos manufacturers. The Asbestos Institute does, however, sponsor research in new uses of asbestos.

Asbestos manufacturers experience seasonal variations of demand roughly paralleling the seasonal variations of

construction work. However, asbestos manufacturers operate on consistent production schedules that do not reflect demand fluctuations. Inventories are built up during periods of low demand and are drawn down during times of heavy construction industry demand. This sort of inventory control enables manufacturers to avoid erratic construction schedules and,

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***Most asbestos gasketing paper is sold to fabricators who

subsequently produce a final product. Several asbestos products, such as asbestos-cement pipe and sheet, asbestos roofing felts, and asbestos

flooring felts, are highly durable products due to the tensile strength of the asbestos fibers used to make them. Asbestos-cement pipe and sheet are strong, resilient, flexible, inert, and fire and corrosion resistant. Asbestos roofing felts and flooring felts, due to their dimensional stability and rot resistance, will last the lifetime of the roofing or flooring products for which they are underlayerments. The majority of the other asbestos products may be considered durable goods.

to the purchaser’s size specifications.*** Asbestos-cement pipe is offered in a variety of diameters, and asbestos millboard and commercial papers are offered in several

combinations of weight and thickness. Asbestos textiles are sold as yarns in a variety of sizes. Asbestos-cement sheet, vinyl asbestos floor tile, and asbestos roofing felts are cut to desired sizes during installation.

4.3.1 Employment

Employment data for the asbestos products industry (SIC 3292) during the 10-year period 1982-1992 are presented in Table 4-4. The data indicate that employment in the industry has been declining relatively steadily. In 1992, employment in SIC 3292 was 76 percent lower than in 1982. This fact, when compared to the employment change over the same period for all manufacturing, indicates a marked decline in asbestos products industry employment relative to employment in the overall

economy.

Employment in SIC 3292 accounts for only a very small share of total U.S. employment. In 1987, less than 0.01 percent of all U.S. jobs were in SIC 3292. The industry’s share of all manufacturing jobs was also small--0.02 percent.

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TABLE 4-4. EMPLOYMENT IN ASBESTOS PRODUCTS (SIC 3292), 1982 TO 199236 Year Employment Average earnings ($) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 12,900 11,900 12,000 10,500 8,900 8,700 8,300 6,900 6,200 4,100 3,100 $8.78 9.18 9.70 9.94 10.22 10.35 10.67 11.10 11.04 11.49 12.62

are primarily semiskilled, and workers in the friction materials sector are less skilled. Manufacturers hire unskilled workers and train them to handle the asbestos

manufacturing machines. Most workers in the asbestos industry are union members, primarily represented by the United Auto Workers, the AFL-CIO, and the Papermakers’ Union.37

4.3.2 Current Trends

The overall historical trend in the use of asbestos products is clear. Because of an apparent rapid substitution away from asbestos products, output has declined at an annual rate of more than 10 percent since 1972, despite the fact that real GNP has increased at an average annual rate of 2.56

percent. Although forecasting is speculative, data indicate that most asbestos products will continue to experience

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4.4 FIRM CHARACTERISTICS

4.4.1 Product Diversification

Diversification arises for two reasons. First, diversification constitutes a response behavior to risk

aversion because it provides a base of revenue less vulnerable to a downturn in any particular market. Diversification also may occur as the result of firm’s desire to apply its existing capabilities to the manufacture of a new product line. In the asbestos industry, most of the prominent firms may be described as diversified.

Currently, many asbestos firms are attempting to become more diversified. They are focusing research and development efforts toward producing viable cost-effective substitutes for asbestos and asbestos products, with some measure of success. At present, substitutes are available for nearly every asbestos product.

Although it seems clear that the effects of product

controls will be less severe on a diversified firm, the overall impact of controls will depend on the particular financial

organization of the diversified firms as well as the number and degree of nondiversified firms.

4.4.2 Ownership

The legal form of ownership affects the cost of capital, availability of capital, and effective tax rate faced by the firm. Business entities that own asbestos manufacturing facilities will generally be one of three types of entities:

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Each type has its own legal and financial characteristics that may influence how firms are affected by the regulatory alternatives. Table 4-5 provides information about the legal form of ownership of firms for the relevant SIC codes 3292. Figure 4-1 compares the legal form of ownership of all firms in the U.S. and the asbestos products industry.

TABLE 4-5. LEGAL FORM OF FIRM ORGANIZATION IN THE ASBESTOS PRODUCTS INDUSTRY: 198740

Legal Form of Organization

Item Corporation

Sole

Propriet-orship

Partner-ships Other Total

Single facility

firms 32 2 0 0 34

Multifacility

firms 16 0 0 0 16

All firms 48 2 0 0 50

4.4.2.1 Sole Proprietorship. A sole proprietorship consists of one individual in business for him/herself who contributes all of the equity capital, takes all of the risks, makes the decisions, takes the profits, or absorbs the losses. Behrens reports that sole proprietorships are the most common form of business.41 The popularity of the sole proprietorship is in large part due to the simplicity of establishing this legal form of organization. For 1987, Internal Revenue Service (IRS) data indicate that nonfarm sole proprietorships

represented almost 72 percent of U.S. businesses but accounted for only 6 percent of business receipts. The 1987 Census of Manufactures reports, however, that very few firms in the U.S. asbestos products industry are sole proprietorships—only 2 of the 50 firms under SIC 3292. This type of business

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Figure 4-1. Comparison of the legal form of organization for firms in the U.S. and asbestos products

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at 4 percent.

Legally, the individual and the proprietorship are the same entity. From a legal standpoint, personal and business debt are not distinguishable. From an accounting standpoint, however, the firm may have its own financial statements that reflect only the assets, liabilities, revenues, costs, and taxes of the firm, aside from those of the individual.

When a lender lends money to a proprietorship, the

proprietor’s signature obligates him or her personally of all of his/her assets. A lender’s assessment of the likelihood of repayment based on the firm and the personal financial status of the borrower is considered legal and sound lending practice because they are legally one-and-the-same. Table 4-6

highlights the advantages and disadvantages of this ownership type.44

TABLE 4-6. ADVANTAGES AND DISADVANTAGES OF THE SOLE PROPRIETORSHIP45

Advantages Disadvantages

Simplicity of organization Owner’s possible lack of ability and experience Owner’s freedom to make all

decisions

Limited opportunity for employees

Owner’s enjoyment of all profits Difficulty in raising capital

Minimum legal restrictions Limited life of the firm

Ease of discontinuance Unlimited liability of

proprietor Tax advantages

Note: A brief evaluation of these advantages and disadvantages is

available in Steinhoff and Burgess (1989).

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of business receipts--4 percent. For 1987, the Census of Manufactures reports no partnerships for SIC code 3293.

A partnership is an association of two or more persons to operate a business. In the absence of a specific agreement, partnerships mean that each partner has an equal voice in management and an equal right to profits, regardless of the amount of capital each contributes. A partnership pays no federal income tax; all tax liabilities are passed through to the individuals and are reflected on individual tax returns. Each partner is fully liable for all debts and obligations of the partnership. Thus, many of the qualifications and

complications present in analyses of proprietorships (e.g., capital availability) are present--in some sense magnified--in analyses of partnerships. Table 4-7 lists the advantages and disadvantages of this ownership type.

TABLE 4-7. ADVANTAGES AND DISADVANTAGES OF THE PARTNERSHIP46

Ease of organization Unlimited liability

Combined talents, judgement, and skillsLimited life

Larger capital available to the firm Divided authority

Definite legal status of the firm Danger of disagreement Tax advantages

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Unlike proprietorships and partnerships, a corporation is a legal entity separate and apart from its owners or founders. Financial gains from profits and financial losses are borne by owners in proportion to their investment in the corporation. Analysis of credit availability to a corporation must recognize at least two features of corporations. First, they have the legal ability to raise needed funds by issuing new stock. Second, institutional lenders (banks) to corporations assess credit worthiness solely on the basis of the financial health of the corporation--not the financial health of its owners. A qualification of note is that lenders can require (as a loan condition) owners to agree to separate contracts obligating them personally to repay loans. Table 4-8 highlights the advantages and disadvantages of this ownership type.

TABLE 4-8. ADVANTAGES AND DISADVANTAGES OF THE CORPORATION48

Limited liability to stockholders Government regulation Perpetual life of the firm Expense of organization Ease of transferring ownership Capital stock tax

Ease of expansion

Applicability for both large and small firms

4.4.3 Size Distribution

Table 4-9 presents the size distribution of the 54

facilities in SIC code 3292 as reported by number of employees.

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involved in the asbestos-containing production activities at the facility. The ICR is due back on January 15, 1994.

4.4.4 Vertical and Horizontal Integration

The extent to which firms in an industry are vertically integrated influences both the difficulty of new entry and their competitive position vis-a-vis one another. In general, vertical integration increases the difficulty of new entry and bestows some comparative advantage on the integrated firms. Vertical integration is a potentially important dimension in firm-level impacts analysis because the regulation could affect a vertically integrated firm on several levels. For example, a regulation may affect companies for whom asbestos products

production is only one of several processes in which the firm is involved. A regulation that increases the cost of producing the asbestos fiber will also affect the cost of manufacturing the primary products and in turn, fabricating the secondary products.

Relative to the total number of primary asbestos product manufacturing firms, few are fully integrated from mining to product distribution.

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TABLE 4-9. ASBESTOS PRODUCTS INDUSTRY GENERAL STATISTICS BY EMPLOYMENT

SIZE OF ESTABLISHMENT (1987)

49

Average no. of Employees Establishments Number Cum.% Employees Number (10 3) Cum.% Payroll _$10 6 Cum.% Value added _$10 6 Cum.% Value shipments _$10 6 Cum.% Capital expenditures $10 6 Cum.% 1-4 5-9 10-19 20-49 50-99 100-499 500-999 Total 7 13.0 12 35.2 13 59.3 9 75.9 5 85.2 4 92.6 4 100.0 54 N/A N/A 0.1 2.5 0.2 7.5 0.3 15.0 0.3 22.5 0.6 37.5 2.5 100.0 4.0 .2 .2 1.7 1.9 3.9 5.9 6.3 12.3 6.4 18.7 11.7 30.6 68.4 100.0 98.7 .5 0.2 4.3 2.4 9.6 7.1 13.2 13.6 18.4 22.7 42.1 43.4 114.6 100.0 202.6 1.3 0.3 8.5 2.5 16.8 6.9 25.3 13.4 32.3 21.8 75.0 41.2 227.3 100.0 386.5 N/A 0.3 2.0 0.7 6.7 0.6 10.7 0.9 16.8 1.3 26.2 11.0 100.0 14.9 NA = not available

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dimension in firm-level impact analysis for either or both of two reasons:

A diversified firm may own facilities in unaffected industries. This type of diversification would help mitigate the financial impacts of the regulation. A diversified firm could be indirectly as well as

directly affected by the regulation. For example, if a firm is diversified in manufacturing pollution control equipment (an unlikely scenario), the regulation could indirectly and favorably affect it.

Wherever possible, firms that produce asbestos-containing products are diversifying into nonasbestos-containing products. For example, many firms who manufacture asbestos roofing

products are now phasing out that production and replacing it with the manufacture of asphalt-type roofing. Likewise, brake manufacturers are attempting to phase out their

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SECTION 5

ASBESTOS PRODUCTS MARKET

Asbestos and asbestos products are produced and consumed domestically as well as traded internationally. Therefore, domestic producers export some asbestos products to other

countries, and foreign producers supply their asbestos products to U.S. markets. This section includes data on value, quantity and price trends over the past decade for asbestos, where

statistics are available.

5.1 PRODUCTION

Table 5-1 reports asbestos world production by country. World production of asbestos was 3,120,524 tons, down 12

percent from that of 1991. Russia, Canada, and Kazakhastan were the largest producers of asbestos, followed by China, Brazil, Zimbabwe, and the Republic of South Africa. Canada, Kazakhastan, and Russia, accounted for approximately 73 percent of the world production in 1992 while the United States

accounted for 0.5 percent of world production of asbestos.

5.1.1 Domestic Production

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TABLE 5-1. ASBESTOS: WORLD PRODUCTION, BY COUNTRY a,50 (metric tons) Country b 1988 1989 1990 1991 1992 c Argentina 2,328 225 300 e 250 e 250

Bosnia and Herzegovina

d — — — — 1,000 Brazil 227,653 206,195 232,332 e 233,100 c 233,000 Bulgaria 300 300 500 e 500 c,e 500 Canada 710,357 701,227 685,627 689,000 e 585,000 China c 150,000 e 181,000 e 221,000 e 230,000 e 240,000 Colombia c,f 7,600 7,900 8,000 8,000 8,000 Cyprus 14,585 — — — — Egypt 166 312 369 450 e 450 Greece 71,114 73,300 e 65,993 e 5,500 c,e — India 31,123 36,502 26,053 e 24,094 e 25,000 Iran c 3,410 e,g 3,300 2,800 e 3,000 e 3,000 Italy 94,549 44,348 3,862 3,000 c,e 1,500 Japan c 5,000 5,000 5,000 5,000 5,000 Kazakhastan b — — — — 300,000 Korea, Republic of 2,428 2,361 1,534 1,500 c 1,600 Russia h — — — — 1,400,000

Serbia and Montenegra

d — — — — 1,700

South Africa, Republic of

145,678 156,594 145,791 148,525 e 123,951 g Swaziland 22,804 27,291 35,938 13,888 e 35,000 Turkey 50 c — — — — U.S.S.R. c,i 2,600,000 2,600,000 2,400,000 2,000,000 —

United States (sold or

18,233 17,427 W 20,061 15,573 Yugoslavia j 17,030 9,111 6,578 5,500 c — Zimbabwe 186,581 187,006 e 160,861 e 141,697 e 140,000 Total 4,310,989 e 4,259,399 e 4,002,538 e 3,533,065 e 3,120,524

See footnotes on following page.

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TABLE 5-1. ASBESTOS: WORLD PRODUCTION, BY COUNTRY

a,50

(metric tons) (continued)

W

Withheld to avoid disclosing company proprietary data.

a

Marketable fiber production. Table includes data available through April 19, 1993.

b

In addition to the countries listed, Afghanistan, Czechoslavakia, North Korea, and Romania also produce asbestos, but output is not officially reported, and available general information is inadequate for the formulation of reliable estimates of output levels.

c

Estimated.

d

Formerly part of Yugoslavia; data were not reported separately until 1992.

e

Revised.

f

Estimated fiber production, based on reported crude production, was as follows in metric tons: 1988—152,896; 1989—158,149; 1990—159,600; 1991—160,332; and 1992—160,000 (estimated)

g

Reported figure.

h

Fomerly part of the U.S.S.R.; data were not reported separately until 1992.

i

Dissolved in December 1991.

j

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TABLE 5-2. SALIENT ASBESTOS STATISTICS

(Metric tons and $10

3 ) 51 1988 1989 1990 1991 1992 United States Production (sales) Quantity 18,233 17,427 W 20,061 15,573 Value a W W W $7,691 $6,138

Exports and reexports

b (unmanufactured) Quantity 31,544 27,004 27,965 25,636 24,860 Value $8,468 $7,690 $7,964 $7,424 $6,724

Exports and reexports of asbestos products

b Value $194,858 $153,081 $120,328 $116,015 $134,102

Imports for consumption

c (unmanufactured) Quantity 85,326 55,306 41,348 34,765 31,602 Value $21,528 $14,031 $10,773 $8,900 $7,210 Consumption, apparent d 71,354 55,306 41,348 34,765 32,780 World Production 4,310,989 d,g 4,259,399 d,g 4,002,538 d,e,g 3,533,065 c,g 3,120,524 c,f W

Withheld to avoid disclosing company propritary data.

a

F.o.b. mine.

b

F.A.S. value.

c

U.S. Customs declared value.

d

Production, plus imports, minus exports, plus adjustments in Government and industry stocks.

e

Does not include U.S. production.

f

Estimated.

g

Revised.

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****A depletion allowance affords a lower Federal corporation tax upon income earned from the sale of exhaustible (depleting) resources. The percentage of depletion permitted, or depletion allowance, is a fixed deduction from annual gross income.

production. Producers are granted a depletion allowance****of 22 percent on domestic production and 10 percent on foreign

production.52

5.1.2 Foreign Production (Exports)

The total value of asbestos fibers and asbestos products exported and reexported was $104,826,000, an increase of 14 percent from that of 1991 (see Table 5-2). Table 5-3 reports U.S. exports and reexports of asbestos and asbestos products. The largest increase in export value, almost $19 million or 22 percent, was observed under the brake and clutch lining

categories. Brake linings and disk pads accounted for 79 percent of the value of all exported manufactured asbestos products. Table 5-4 lists the countries importing U.S.

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TABLE 5-3. U.S. EXPORTS AND REEXPORTS OF ASBESTOS AND ASBESTOS PRODUCTS53 Quantity (metric tons) Value ($103) 1991 Unmanufactured Asbestosb 25,636 $7,424 Manufactured Asbestos fibers NA 772

Brake linings and disk brake padsc NA 86,980

Clutch facings and liningsd NA 6,637

Clothing, cord, fabric, and yarn NA 724

Gaskets, packing and seals NA 6,841

Panel, sheet, title, and tubee NA 4,651

Paper and millboard NA 1,155

Other articlesf NA 8,254 Totalg XX 116,015 1992 Unmanufactured Asbestosb 24,860 6,724 Manufactured Asbestos fibers NA 512

Brake linings and disk brake padsc NA 105,840

Clutch facings and liningsd NA 8,940

Clothing, cord, fabric, and yarn NA 748

Gaskets, packing and seals NA 5,567

Panel, sheet, title, and tubee NA 4,560

Paper and millboard NA 925